Bitcoin Supply In Loss Begins To Rise, Raising Early Bear Market Concerns

Overview

Crypto research firm CryptoQuant has identified a concerning trend for Bitcoin, signaling potential early stages of a bear market. The firm has observed an increase in Bitcoin’s supply in loss, a metric that has historically indicated downturns in the digital asset market.

Bitcoin’s Supply in Loss Metric

In a report released on Wednesday, CryptoQuant highlighted that the supply in loss for Bitcoin has begun to rise again. This metric is crucial as it often serves as an early warning signal for prolonged market downturns. According to analysis from CryptoQuant contributor Woominkyu, an increase in supply held at a loss suggests that market weakness is extending beyond short-term traders to impact longer-term holders. Historical data from previous market cycles, specifically 2014, 2018, and 2022, reveals that this indicator began trending upward well before Bitcoin prices reached their lowest points.

During these earlier cycles, Bitcoin prices continued to decline even after the supply in loss metric increased, with actual market bottoms forming only after the supply in loss expanded significantly, leading to broader capitulation among holders. Presently, while Bitcoin’s supply in loss is still below levels typically associated with full market capitulation, the recent change in direction is noteworthy. Analysts from CryptoQuant believe this shift indicates that the market may be transitioning into a bearish structural phase rather than simply experiencing a temporary correction within a bull market.

Current Market Conditions

Bitcoin’s recent price activity reflects the uncertainty in the market. The asset is trading around $89,700 and has faced challenges in reclaiming the critical $90,000 level as support. This price movement follows a steady decline from earlier yearly highs near $98,000, where upward momentum diminished as buying pressure weakened, erasing gains recorded earlier in the year.

Macro Signals from the US Dollar

Despite the cautionary indicators regarding Bitcoin’s supply in loss, not all analysts view the outlook as entirely bleak. Analysts from Bull Theory have pointed to a potentially bullish development involving the US dollar. They noted that the US Dollar Index is currently testing a significant zone that has historically preceded major Bitcoin bull runs in both 2017 and 2021. Their analysis indicates that the Dollar Index has broken below a long-term trendline, which had persisted for about 16 years, and is now hovering around the critical level of 96.

Historically, periods when the Dollar Index fell below 96 and remained there have coincided with strong Bitcoin rallies. For instance, in mid-2017, the index dropped below this level, leading to Bitcoin surging nearly eightfold over the following months. A similar pattern occurred during the 2020 pandemic era, where Bitcoin rose significantly following a drop in the Dollar Index.

From author

The current market dynamics present a complex picture for Bitcoin and the broader cryptocurrency landscape. While the rise in Bitcoin’s supply in loss could indicate early bear market conditions, potential bullish signals linked to the US dollar suggest that the market may still have room for recovery. Observing how these factors play out will be crucial for traders and investors alike.

Impact on the crypto market

• The increase in Bitcoin’s supply in loss may signal a shift toward a bear market.
• Historical patterns indicate that this metric often trends upward before significant price declines.
• Current price struggles around the $90,000 level reflect market uncertainty and potential bearish sentiment.
• The US Dollar Index’s movement provides a counter-narrative, with historical precedents for Bitcoin rallies when the index falls below critical levels.
• The interplay between these signals could determine the near-term direction of the cryptocurrency market.